Bitcoin: A Natural Oligopoly

Nick Arnosti, S. Matthew Weinberg

Research output: Contribution to journalArticlepeer-review


We argue that the concentrated production and ownership of Bitcoin mining hardware arise naturally from the economic incentives of Bitcoin mining. We model Bitcoin mining as a two-stage competition; miners compete in prices to sell hardware while competing in quantities for mining rewards. We characterize equilibria in our model and show that small asymmetries in operational costs result in highly concentrated ownership of mining equipment. We further show that production of mining equipment will be dominated by the miner with the most efficient hardware, who will sell hardware to competitors while possibly also using it to mine.

Original languageAmerican English
Pages (from-to)4755-4771
Number of pages17
JournalManagement Science
Issue number7
StatePublished - Jul 2022

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research


  • Bitcoin
  • cryptocurrency
  • economics
  • game theory and bargaining theory
  • proof of work

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